Trend, support and resistance: the structure of price

Technical analysis studies price to understand what it might do next. No method predicts the future, but price structure (trend, support, resistance) gives you an objective context to decide whether to trade and where to put stop and target. This is the most important lesson of the module: everything else will use it.

The trend: the prevailing direction

Price doesn't move in a straight line: it rises and falls in waves. By looking at the turning points, called swings, you can see direction:

• Uptrend: a sequence of higher highs (HH) and higher lows (HL). Each pullback stops higher than the previous.
• Downtrend: lower highs (LH) and lower lows (LL).
• Sideways (range): price oscillates between a high and a low without making lasting new extremes.

How to recognise a change of trend

An uptrend is in question when price breaks the last higher low (that is, makes a lower low than the previous). It doesn't mean it becomes bearish, but that it has lost its main feature: a range or a reversal may begin. The rule: as long as the HH-HL sequence holds, the trend is healthy.

Support and resistance

A support is an area where price, falling, stopped and bounced. A resistance is an area where price, rising, was rejected. Why do they work? Because many market participants remember those levels: who bought at the low, who sold at the high, who placed orders. Price "returns" where there has been activity.

They're zones, not lines

The beginner draws a very thin line and is surprised when price crosses it by a few pips. In reality supports and resistances are areas: bands of price. Here's how to draw them well:

1. On the high timeframe find the points where price has turned several times.
2. Draw a rectangle that includes the extremes (wicks included) of those points.
3. The more times the area has been respected, the more "important" it is (but also the more likely to break).

Role reversal

When a support is broken decisively, it usually becomes resistance, and vice versa. Price falls below a support, then rises, retests it from below and is rejected: the old floor has become a ceiling. It's one of the most reliable and widely used behaviours.

Trendlines and channels

• Rising trendline: a line joining at least two rising lows. It acts as dynamic support.
• Falling trendline: joins two falling highs. It acts as dynamic resistance.
• Channel: two parallel lines enclosing the movement; price bounces between the upper and lower.

Common-sense rules: you need at least three touch points for the line to be meaningful; don't force the points to make it fit; remember that a broken trendline is information, not an automatic reversal signal.

True and false breakouts

A breakout happens when price leaves a support or resistance area. But many breakouts are false: price exits, draws in the latecomers' entries and then returns. How to tell them apart?

• Close beyond the level: a candle that closes beyond the area counts more than a mere wick.
• Candle strength: a large body and a close near the extreme = a convincing breakout.
• Retest: after the breakout, price returns to test the level from the other side (now with the role reversed). If it holds, the breakout is more solid.
• Context: a breakout in favour of the major trend is more credible than one against it.

Putting it together: a reasoned example

Notice how everything needed to decide (context, area, confirmation, stop, target) comes from structure, with no indicators.

Draw support and resistance yourself

Here's EUR/USD on the daily timeframe. Use the drawing tools on the left (rectangle or horizontal line) to mark the two most obvious support and resistance areas, then mark the swings and state the trend. It isn't saved, so take a screenshot if you want to keep it.

What technical analysis doesn't do

It guarantees nothing. Every level can give way, every trend can end. It serves to build scenarios with defined risk: if X happens, I enter; if Y happens, I exit. The real strength lies in combining structure and risk management.

In short

• The trend is read from swings: HH/HL bullish, LH/LL bearish, otherwise range.
• Support and resistance are areas where price has already reacted; draw them as zones.
• A broken support often becomes resistance (and vice versa).
• Trendlines and channels give dynamic support/resistance, with at least three touches.
• For breakouts, what counts is the close, the strength of the candle and the retest.

Practical exercise

1. On a daily EUR/USD and a daily GBP/USD chart mark the last 6 swings and say whether the trend is up, down or sideways.
2. Draw the two most important support/resistance zones as rectangles.
3. Find a false breakout from the past and a true one: what distinguished them?